What Is The Difference Between A Purchase Order And An Invoice?

Are you new to the procurement process and confused about the difference between a purchase order and an invoice? Don’t worry, you’re not alone. Many people get these two documents mixed up, but understanding their differences is crucial for any successful business transaction. In this blog post, we’ll break down what each document entails, when to use them, and how to create them. So whether you’re a seasoned professional or just starting out in procurement, read on to gain a better understanding of purchase orders and invoices!

What is a purchase order?

A purchase order is a legal document that outlines the details of a transaction between a buyer and a seller. It serves as an official agreement to purchase goods or services at an agreed-upon price, quantity, and delivery date.

Typically, the purchaser will create the purchase order and send it to the vendor for confirmation before any work begins. This helps ensure that both parties are on the same page regarding what is being purchased and under what terms.

A typical purchase order will include information such as:

– The name of the company placing the order
– The contact information for both buyer and seller
– A detailed description of what is being purchased (including quantity)
– The cost per unit, along with any taxes or fees
– Delivery dates and locations

Once both parties have signed off on the purchase order, it becomes legally binding. Any changes to its contents must be approved by all involved parties in writing.

Using a well-crafted purchase order can help prevent misunderstandings or conflicts during procurement processes by establishing clear expectations from the outset.

What is an invoice?

An invoice is a commercial document that serves as evidence of a transaction between the buyer and seller. This document outlines what was sold, the quantity, price, taxes and any other relevant information about the products or services purchased.

Invoices are an essential part of business transactions as they help to keep track of sales made by a company. They also serve as proof of purchase for customers who need to keep records for accounting purposes.

An invoice typically includes details such as the name of the vendor, date of issue, payment terms and due dates. The purpose of an invoice is to request payment from a customer in exchange for goods or services provided by the vendor.

There are different types of invoices depending on their use-case scenario. For instance, some companies may issue proforma invoices which act as quotations for potential clients while others may require partial payments before issuing final invoices.

An invoice plays a crucial role in ensuring timely payments and accurate record-keeping within businesses.

How are purchase orders and invoices different?

Purchase orders and invoices are two critical documents used in the procurement process. Both contain important information about a purchase transaction, but they serve different purposes.

A purchase order is a document issued by a buyer to a seller that outlines specific details of goods or services that need to be purchased. It includes information such as quantity, description, price per unit, delivery date, and payment terms. The purpose of a purchase order is to confirm the details of an intended purchase before it takes place.

An invoice, on the other hand, is a document issued by a seller to a buyer after goods or services have been delivered. It serves as proof of sale and payment obligation. An invoice typically includes details such as the product or service provided, quantities supplied or hours worked if applicable, any discounts applied if any were agreed upon earlier between parties etc., total amount due for payment along with payment terms like due date.

A purchase order confirms what will be bought before it happens while an invoice documents what has already been sold after it happened which means both serve different purposes in your procurement transactions.

When should you use a purchase order?

A purchase order is a legally binding document that outlines the details of the goods or services that a buyer intends to purchase from a seller. It is essentially an agreement between two parties on the terms of a transaction.

So when should you use a purchase order? The answer depends on several factors, such as the size and complexity of your business operations. For instance, if you run a small business with few suppliers, it might not be necessary to use purchase orders for every transaction. However, larger businesses with more complex procurement needs may find them essential.

Purchase orders are especially useful when dealing with new suppliers or vendors who are not familiar with your purchasing process. They provide clear documentation of what you need and at what price point, which can help prevent misunderstandings down the line.

Additionally, using purchase orders can help streamline your accounting processes by ensuring accurate record-keeping and minimizing errors in invoicing and payment processing. This can save time and money in the long run.

While not always necessary for every buying situation, using Purchase Orders is recommended especially when working with new sellers/vendors or where there’s complexity involved.